Sweeping reforms announced in the Budget mean that from April 2015 retirees will be able to withdraw their entire pension pot as a cash lump sum.

However, only 28 per cent of pre-retirees surveyed by Fidelity correctly identified that they could receive 25 per cent of their pension pot as a tax free lump sum with the remaining chunk treated as income for that tax year.

A similar number – 29 per cent – believed that they could receive the full amount as a tax-free lump sum, while 37 per cent did not know or were unsure. A further 7 per cent thought the full lump sum would be taxed.

This is despite half saying they were planning to withdraw their whole pension as cash.

Fidelity warned that withdrawing an entire pension pot could push retirees into a higher tax band, increasing the amount they pay to the Treasury.

Alan Higham, head of retirement insight at the firm, said: “A basic rate tax payer with a pension pot of just £30,000 and earning the average wage of £27,000 could unexpectedly find themselves in the higher rate tax band just by taking their full pot at retirement.”

Higham calculated that such a person taking their pot in one go would pay £6,000 in taxes. By withdrawing their fund over two years they could save £1,500 of unnecessary tax.

Higham has called for more action by providers and the government to make people aware of these subtleties before the flood gates open next April.

He said: “While people may be prepared to pay income tax to a point, why pay more than you really need to when the amount you pay can be managed by having a proper plan in place? We urge people to get specialist retirement advice and ensure they know what they are doing.”